The Philippines: Rate hike unlikely in 1H22, says Diokno

  • THE PHILIPPINES’ central bank is unlikely to increase policy rates in the first half of this year as it waits for the economic recovery to become entrenched and unemployment to fall, according to central bank Governor Benjamin E. Diokno.
  • “After the performance in 1H22, that’s when we seriously look at whether we will make some adjustments,” Mr. Diokno said in an interview. “We want to make sure that the economy is recovering well.”
  • “There is no ‘one size fits all’ on what’s happening,” Mr. Diokno said, when asked how faster rate increases by the US Federal Reserve will impact emerging-market central banks.
  • The governor said the Bangko Sentral ng Pilipinas typically likes to see four to six quarters of steady economic growth and unemployment around 5% before considering raising rates.
  • Gross domestic product has posted two consecutive quarters of y/y growth — including, most recently, 7.1% expansion in 3Q21 — while the unemployment rate hit 6.5% in Nov 21, the lowest since the pandemic began.
  • The governor said the economy can grow within the government’s 7%-9% forecast in 2022, with inflation set to slow to near the midpoint of the central bank’s 2%-4% target.
  • If the economy needs more support, a cut to the benchmark rate is unlikely, Mr. Diokno said. Instead, policy makers can consider tweaks to banks’ reserve requirement ratio (RRR), either in the form of direct cuts to the ratio or an easing of compliance rules, he said.
  • Foreign-exchange strategists see the peso under pressure as the central bank aims to keep monetary policy accommodative while the Fed turns hawkish. The local currency has lost about 0.5% against the greenback ytd.
  • Mr. Diokno said he’s “very comfortable” with the peso trading in a range of PHP48-PHP53 per dollar, adding that the currency is unlikely to weaken beyond PHP53.

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